Is Diamond S Shipping next? Now that private equity investor WL Ross & Co has shed its 39.1% stake in Navigator Holdings, attention has inevitably turned to its other large shipping investment: a 22% holding in New York-listed tanker owner Diamond.
WL Ross and its owner, Invesco, have been paring their stake in Craig Stevenson-led Diamond since last year.
There is widespread market perception that it would like out of the investment entirely — sooner rather than later — in a private equity exit, or "prexit" as industry wags have dubbed it.
A recent twist has deepened the intrigue.
Diamond board chairman Nadim Qureshi recently left positions at WL Ross and Invesco to found his own private equity firm, New York-based BroadPeak Global.
He teams with co-founder Stephen Toy, another former WL Ross and Invesco executive.
WL Ross was founded in 2000 by master investor Wilbur L Ross, who sold to Invesco in 2006. Currently US commerce secretary, Ross sold his Invesco shares in December 2017.
Qureshi is staying on as Diamond’s board chairman, and finance sources said there is a close cooperative relationship between WL Ross/Invesco and the fledgling BroadPeak.
Further, there are rumours that BroadPeak may have an understanding that could allow it to acquire WL Ross/Invesco shipping interests as part of its portfolio.
A message to Qureshi was not returned by TradeWinds’ deadline.
New York-based BroadPeak launched as an independent private equity firm on 23 November.
The outfit is “dedicated to opportunistic buyouts and special situations transactions in the global industrials, materials and chemicals sectors”.
BroadPeak says it will invest in companies valued at between $200m and $1bn. Diamond has a current market capitalisation of about $275m.
WL Ross has been Invesco’s arm for private equity investments like those it made in Diamond and Navigator.
Trillion dollars in assets
But when Invesco bought out asset manager Oppenheimer in 2019, it created a giant with $1.2trn in assets under management.
Private equity made up less than $20bn, and was deemed a non-strategic business that Invesco would not continue to grow.
The departure of Qureshi and Toy is said to have come in close cooperation with WL Ross and Invesco, affording both men opportunities to pursue new investments that would not have been possible had they remained.
WL Ross and US energy investor First Reserve are two of the oldest and largest investors in Diamond, which operates a fleet of 50 MR product tankers and 15 suezmaxes.
First Reserve initially entered Diamond when the company formed in 2007.
WL Ross pounced in 2011. Together with First Reserve and China Investment Co, it led a $1bn equity investment that allowed Diamond to purchase the 30-unit product tanker fleet of Cido Shipping.
Both WL Ross and First Reserve trimmed their holdings late in 2019 and again in June through sales led by Norway’s Pareto Securities.
First Reserve sold more than half its stake to reach a 7.1% holding, while WL Ross pared about 8% to get to 22%. It remains the company’s largest shareholder.
The most recent reported sales came at $13.75 per share. The stock was mired at barely half that, around $7, in recent trading.
WL Ross had made its first investment in Navigator in 2011, about the same time it moved into Diamond.
Private equity players tend to face increased pressure to exit their investments as the maturity of their individual funds nears, as has been assumed to be the case with WL Ross and Diamond.
However, the picture can be fuzzy. Private equity funds can ask investors to approve an extension if factors are not favourable for an imminent sale, for example.
This becomes a bit of a poker game.
Equity funds are only too happy to keep the picture unclear as they hate to appear under pressure to make an exit. So assurances about a relaxed timeline can be met with some scepticism.
With that caveat, sources familiar with the WL Ross’ $197m sale of Navigator shares to the BW Group indicate there was no hard pressure to sell. Indeed, WL Ross has other investments pending in older funds, they said.
The same sources offered a similar description of the investment in Diamond.
Finance sources speculate, however, that BroadPeak could be positioned to take out WL Ross’ position at a cyclical low point, but likely also at a premium to where shares have been trading.
A source close to the company suggests it will consider multiple alternatives, while the WL Ross decision will be governed by its limited partnership investors.
